Here's some reasoning behind the rand's big slip.

South Africa’s rand has had a torrid weekend, with the currency dropping over 4% lower to the US dollar as of Monday morning.

What’s worse is that all the promise and potential rallied around President Cyril Ramaphosa has done little to alleviate foreign investor concern, nor has it been able to negate trade wars and general instability surrounding emerging markets.

Political infighting, severely indebted state-owned enterprises and the controversial land expropriation bill have all resulted in a 15% drop in South Africa’s currency against the ever-strengthening American greenback.

While the above mentioned local stumbling blocks have had a definitively negative impact on the rand, analysts point to global factors which compound the issue of an uneasy exchange rate.

US President Donald Trump

Business Tech interviewed economic analyst, Bianca Botes, who works as the corporate treasury manager at Peregrine Treasury Solutions – she maintains that the current trade-war is having a negative effect on global emerging markets.

This trade war initially started as a row between the US and China, concerning trade tariffs and regulations. The trade disagreement, spearheaded by US president Donald Trump, has now had a knock on effect on other countries.

According to Botes, the most recent country to fall victim to the ongoing trade war is Turkey. This leading emerging market has been slapped with exorbitant trade tariffs regarding steel and aluminium imports. Botes commented on the Turkish trade tariff knock-on effect, saying:

But there is more to it than just the restriction on trade. On Friday, Turkey experienced what could be classified as a currency bloodbath as the lira plummeted by over 18% bringing its 2018 losses close to 40%. Turkey is now accusing countries – the US being the most obvious subject of discussion – of engaging in economic warfare on the country following a failed coup in 2016.”

According to Botes, the struggle affecting an emerging market partner like Turkey has a negative effect on South Africa and other emerging economies.

South African debts are mounting

Another reason for the sharpest currency drop since October 2008 is the rise of foreign interest rates. The problem is that South Africa owes 40% of its total GDP to the US and Euro.

Botes maintains that the rise in foreign interest rates has increased the value of these international debts, saying:

“One can quickly grasp the impact of rising foreign interest rates, especially in the US and Europe. As these two regions move away from the quantitative easing state prevailing since the Global Financial Crisis and raise interest rates, foreign denominated loans become harder and harder to service, especially by economies under pressure.”

Slow economic growth

Statistics reveal that emerging economies have struggled to shake off the effects of the Global Financial Crisis. South Africa has failed to recover from the global crisis, while issues pertaining to poverty, unemployment and mounting debts do little to alleviate the financial pressure.

According to Business Tech, at 7:20 on Monday morning 13 July, the rand was trading at: